US mid-term elections in focus; European Service PMIs mixed

Notes/Observations

Asia:

- US midterm elections in focus: 85% chance that democrats take the House; 85% chance Republicans hold the Senate; If Republicans surprisingly hold Congress, the USD, equities and Treasury yields could get a lift on the promise of Trump 2.0

- Major European PMI Services data mixed (Beats: Germany, Euro Zone, Spain; Misses: France, Italy)

- German Sept manufacturing orders beat expectations; appear ‘solid'

Asia:

- RBA left its Cash Rate Target unchanged at 1.50% (as expected). Reiterated stance that low rates supporting the economy. Raised 2018 and 2019 GDP forecasts from ~3.0% to ~3.5%

- China PBoC Adviser Ma Jun: USD/CNY rate of '7' is NOT a key level as market players have excepted flexibility in the currency's exchange rate

- China VP Wang Qishan reiterated unilateralism threatened the global economy, global economy faced its biggest change since Cold War. China and US would lose from confrontation

Europe:

- Italy Fin Min Tria: budget talks with European Commission would go forward; reiterated that 2019 draft budget would not change but debt would fall

- Euro Zone statement: Focus on sufficient debt reduction and structural debt reduction were an integral part of EU budget rules; agreed with EU Commission that Italy's draft budget broke EU rules. Looking forward to Italy cooperating closely with EU Commission on readying revised budget in line with EU rules

- ECB officials said to be eager to avoid market disruption by switching to a new capital key. Applying only to new asset purchases, another gradually applied to bond holdings

- EU Brexit Negotiator Barnier reiterated the goal was to negotiate an orderly Brexit; UK had chosen to leave the EU ecosystem

- Cabinet Ministers to tell PM May that she needed to stand firm on Ireland border issue or face Brexit deal failing. Brexit Sec Raab and Hunt would lead as many as 12 Cabinet ministers in defiant stand at the Cabinet's weekly meeting. Chief Whip Julian Smith told PM's office they could only rely on 15 Labour MPs to vote for UK PM's softer Brexit deal

 

Macro

(IT) Italy: Eurozone Finance Ministers yesterday backed demands from the European Commission on Italy to revamp the disputed budget. European Commissioner Moscovici said after the meeting that the Commission is expecting a new changed budget proposal by November 13. The Italian government though remains unwilling to change the budget plans.

(DE) Germany: Despite factory orders unexpectedly increasing during September orders still declined -1.5% q/q during Q3, after contracting -1.6% q/q in Q2. PMIs continue to suggest that export orders continue to be pressured and that will continue to weigh on overall growth in Q4. The auto sector is also still feeling the impact from the change in emissions standards that will likely continue as Germany looks set to ban diesels from city centers.

(EU) Eurozone: Markit highlighted that prices data in their PMI readings signalled another sharp increase in operating expenses, with energy and fuel prices, but also higher labor costs putting upward pressure on prices. This would suggest that the ECB will stick at least to the phasing out of QE, even if officials are reluctant to contemplate rate hikes .

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.3% at 362.3, FTSE -0.3% at 7081, DAX -0.5% at 11445, CAC-40 -0.5% at 5077, IBEX-35 -1.1% at 8913, FTSE MIB -1% at 19082, SMI -0.1% at 9002, S&P 500 Futures -0.3%]

Market Focal Points/Key Themes: European Indices trade mostly lower across the board following a mixed session on Wallstreet and Asia overnight. and lower US futures in cautious trade ahead of the US Mid Term Elections later today. On the corporate front, on a busy morning for earnings shares of German postal name Deutsche Poste trade higher after affirming their outlook; Adecco also trades higher after a rise in profits and Revenue. Other names trading higher include Adecco, Primark owner ABF, SGL Carbon and Hunter Douglus following earnings. Supermarket name Morrisons trades sharply lower after seeing a slowdown in Q3 sales, Zalando continues to disappoint after a deterioration in profits; Pandora also drops after cutting its growth forecasts and missing estimates. Looking ahead notable earners include Ralph Lauren, AES, Gogo, US Foods Group, CVS Health and Emerson Electric among others.

 

Equities

- Consumer discretionary: EasyJet [EZJ.UK] +1%, Wizz Air [WIZZ.UK] +0.5% (October load factors), Adecco [ADEN.CH] +5% (earnings), Hugo Boss [BOSS.DE] +1% (earnings), AB Foods [ABF.UK] +1.5% (earnings), WM Morrison Supermarkets [MRW.UK] -4.5% (trading update), Pandora [PNDORA.DK] +4.5% (earnings; affirms CEO search; launches new corporate strategy), William Hill [WMH.UK] +1% (trading update), Starbreeze [STAR.SE] +11% (earning; new near-term target announcement), Zalando [ZAL.DE] -5.5% (earnings), DIA [DIA.ES] -9% (analyst action)

- Consumer staples: Imperial Brands [IMB.UK] +1% (earnings; affirms medium-term outlook), Norway Royal Salmon [NRS.NO] -12% (earnings; cuts FY18 outlook)

- Materials: Arkema [AKE.FR] -3% (earnings; affirms outlook), SGL Carbon [SGL.DE] +13% (earnings; outlook raise)

- Financials: Gam Holding [GAM.CH] -0.5% (CEO change)

- Healthcare: Sanofi [SAN.FR] -0.5% (FDA Grants Priority Review for Dupixent® (dupilumab) as Potential Treatment for Adolescents with Uncontrolled Moderate-to-Severe Atopic Dermatitis)

- Industrials: Deutsche Post DHL [DPW.DE] +2.5% (earnings; affirms FY18, FY20 outlooks), Rolls Royce Holdings [RR.UK] +1.5% (Confirms signs pact worth over $1B with China Eastern), DS Smith [SMDS.UK] -1% (trading update), Singulus [SNG.DE] +10% (new contract assigned)

 

Speakers

- EU's Moscovici commented ahead of the ECOFIN meeting in Brussels that the next step on Italian budget dependent on the Italian response. Expected a strong precise answer from Italy on Nov 13th. Sanctions could be applied if there is no compromise on the Italian budget

- Italy Fin Min Tria stated that still had some disagreements with EU Commission but could continue dialogue

- UK Trade Sec Fox: Still a number of Brexit issues to be addressed . Reiterated that was unacceptable for any deal to treat Northern Ireland differently. Wanted to replicate EU WTO tariffs as far as possible

- Northern Ireland DUP's Donaldson: Appears we are heading for a 'no-deal' Brexit

- Ireland European Min Mcentee: Backstop position had not changed. Ruled out unilateral review for backstop

- Norway Central Bank (Norges) Gov Olsen reiterated view of gradual rate hikes Important to sell how NOK currency (Krone) reacts to rate hikes

- Norway Central Bank (Norges) Dep Gov Matsen reiterated stance of seeing gradual rate hikes

- Sweden Central Bank (Riksbank) Af Jochnick reiterated Riksbank stance that getting closer to normalizing monetary policy with 1st potential rate hike possible in Dec or Feb. GDP growth seen around 2% in coming years

- Czech Finance Ministry cut its 2018 and 2019 GDP growth forecasts. Cuts 2018 GDP growth forecast from 3.2% to 3.0% and 2019 GDP from 3.1% to 2.9%

- Turkey Central Bank on Oct inflation data: Disinflationary effect of demand conditions to become more apparent in 2019. Tight policy stance was focusing on bring inflation down and saw inflation gradually seen converging to target

- Bank of Korea (BOK) Oct Minutes: Both dissenters agreed that inflation pressures not that high. A BOK member saw rate hike as needed for financial stability. A BOK member noted that securing further policy space was important at this time

- China Premier Li reiterated pledge to enact reforms and open up financial markets. Reiterated monetary policy would be more targeted to support private companies and smaller businesses. Reiterated stance that will not resort to competitive currency devaluations and had the ability and confidence to keep Yuan currency basically stable

- India govt official: Likely to reduce Iranian oil imports by 10-12% in current fiscal year under a deal with US.

- China said to have been granted exemption to purchase 360K bpd of oil from Iran for 180 days while South Korea said to be granted 200K bpd waiver

- Brazil Central Bank (BCB) Oct COPOM Minutes stated that next steps to depend on the balance of risks and economic activity. Evolution of base scenario prescribed a steady Selic target Rate

 

Currencies/Fixed Income

- USD was little changed as the focused turned to the US midterm elections. Expectations of a 85% chance that Democrats take the House and 85% chance Republicans hold the Senate. Dealers noted that if Republicans surprisingly hold onto its majority in Congress, the USD, equities and Treasury yields could get a lift on the promise of Trump 2.0

- EUR/USD was little changed at 1.14110 area

- GBP/USD was fractionally higher after reports circulated that EU was preparing to o?er the UK PM May an independent mechanism by which Britain could end a temporary customs arrangement with the EU which could could help overcome the key sticking point in Brexit talks

 

Economic data

- (NL) Netherlands Oct CPI M/M: +0.4% v -0.4% prior; Y/Y: 2.1% v 1.9% prior

- (NL) Netherlands Oct CPI EU Harmonized M/M: 0.5% v 0.2%e; Y/Y: 1.9% v 1.7%e

- (RU) Russia Oct PMI Services: 56.9 v 54.5e (33rd month of expansion and highest since Nov 2017); PMI Composite: 55.8 v 53.5 prior

- (DE) Germany Sept Factory Orders M/M: +0.3% v -0.5%e; Y/Y: -2.2% v -2.8%e

- (CZ) Czech Sept National Trade Balance (CZK): 13.7B v 13.0Be

- (CZ) Czech Sept Industrial Output Y/Y: -0.9% v -0.2%e; Construction Output Y/Y: 12.4% v 11.9% prior

- (TW) Taiwan Oct CPI Y/Y: 1.2% v 1.7%e; CPI Core Y/Y: 0.7% v 1.0%e; WPI Y/Y: 6.0% v 6.3% prior

- (ES) Spain Oct Services PMI: 54.0 v 51.8e (58th month of expansion); Composite PMI: 53.7 v 52.1e

- (SE) Sweden Sept Private Sector Production M/M: 0.2% v 0.5%e; Y/Y: 2.0% v 2.7%e

- (SE) Sweden Sept Industrial Orders M/M: 0.0% v -4.5% prior; Y/Y: -0.4% v +2.0% prior

- (SE) Sweden Sept Industry Production Value Y/Y: 2.2% v 2.0%e; Service Production Value Y/Y: 2.4% v 3.5% prior

- (IT) Italy Oct Services PMI: 49.2 v 52.0e (1st contraction in 27 months and lowest since Sept 2014); Composite PMI: 49.3 v 51.0e

- (FR) France Oct Final Services PMI: 55.3 v 55.6e (confirmed 28th month of expansion); Composite PMI: 54.1 v 54.3e

- (DE) Germany Oct Final Services PMI: 54.7 v 53.6e (confirmed 64th month of expansion); Composite PMI: 53.4 v 52.7e

- (EU) Euro Zone Oct Final Services PMI: 53.7 v 53.3e (confirmed 64th month of expansion); Composite PMI: 53.1 v 52.7e

- (IS) Iceland Oct Preliminary Trade Balance (ISK): -11.7B v -14.1B prior

- (SE) Sweden FSA Quarterly Mortgage Margin Report: 1.55% v 1.57% prior (7th month of decline and lowest level since July 2016)

- (EU) Euro Zone Sept PPI M/M: 0.5% v 0.4%e; Y/Y: 4.5% v 4.3%e

- (RO) Romania Central Bank (NBR) left Interest Rates unchanged at 2.50%; as expected

**Fixed Income Issuance**

- (EU) EFSF opened its book to sell EUR-denominated Jan 2024 Bond via syndicate; guidance seen -13bps to mid-swaps; order book over €4.0B

- (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

- (ID) Indonesia sold total IDR20T vs. IDR10T target in 3-month and 9-month Bills, 5-year, 15-year, 20-year

- (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B in 2023, 2030 and 2037 bonds

- (CH) Switzerland sold CHF 378.1M in 3-month Bills; Avg Yield: -0.963% v -0.951% prior

 

Looking Ahead

- (EG) Egypt Oct Gross Reserves: No est v $44.5B prior; Net Reserves: No est v $44.5B prior

- (UR) Ukraine Oct Official Reserve Assets: No est v $16.6B prior

- (ES) Spain Supreme Court: Mortgage Stamp Duty

- 05:30 (UK) Weekly John Lewis LFL sales data

- 05:30 (UK) DMO to sell £2.25B in 1.625% 2028 Gilts

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €8.0B with 42 bids recd

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills; Avg Yield: % v -0.07% prior; Bid-to-cover: x v 2.17x prior (Oct 30th 2018)

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €3.7B in 1-month, 3-month and 12-month Bills

- 06:00 (RO) Romania to sell €150M in 2023 bonds

- 06:15 (FR) ECB's Coeure (France) on panel in Brussels

- 06:30 (TR) Turkey Oct Effective Exchange Rate (REER): No est v 61.62 prior

- 06:30 (CL) Chile Central Bank (BCCp) Oct Minutes

- 06:30 (EU) ESM to sell €2.0B in 3-month bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Oct PMI Services: No est v 46.4 prior; PMI Composite: No est v 47.3 prior

- 07:00 (EU) ECB's Lautenschlaeger (Germany, SSM member) speaks in Frankfurt

- 07:00 (RO) Romania Central Bank gov Isarescu to hold post rate decision press conference

- 07:30 (FI) IMF assessment of Finland's Economy

- 07:45 (US) Weekly Chain Store Sales data

- 08:10 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada Sept Building Permits M/M: 0.3%e v 0.4% prior

- 08:55 (US) Weekly Redbook Retail Sales

- 09:00 (MX) Mexico Oct Consumer Confidence Index: 101.3e v 101.7 prior

- 09:00 (MX) Mexico Aug Gross Fixed Investment: 0.4%e v +5.0% prior

- 09:00 (EU) ECB weekly FX Reserve data

- 09:00 (RU) Russia announces weekly OFZ bond auction (held on Wed)

- 10:00 (US) Sept JOLTS Job Openings: 7.125Me v 7.136M prior

- 10:00 (NZ) Fonterra Dairy Auction Whole

- 10:15 (SE) Sweden Central bank (Riksbank) Gov Ingves speaks in Stockholm

- 11:30 (US) Treasury to sell 8-Week Bills

- 11:30 (US) Treasury to sell 52-Week Bills

- 12:00 (US) DOE Short-Term Crude Outlook

- 13:00 (US) Treasury to sell 10-Year Notes

- 15:00 (MX) Mexico Citibanamex Survey of Economists

- 16:30 (US) Weekly API Oil Inventory data

- (US) US Midterm Elections